What is the background?
The UK government introduced the new Health and Social Care Levy in 2021, which will come into effect in April 2022. The new Levy, intended to help fund the NHS and health and social care, will be added to the National Insurance (NI) liability for employers and employees (as well as the self-employed) for the 2022/23 tax year, before becoming a separate tax in April 2023.
What is the impact on employers?
The employer costs of NI on salaries, bonuses, and benefits in kind will increase by 1.25% from April 2022, meaning that the Class 1, Class 1A (benefits in kind) and Class 1B (PAYE Settlement Agreements) will all be impacted. In addition, an employee’s take home pay will be reduced, with the additional 1.25% also being deducted from the gross salary of most workers.
Are there any areas which are less affected?
There are two main benefits which have largely escaped the impact of the proposed increases:
- Employer pension contributions; and
- Provision of Ultra Low Emission Vehicles (ULEVs) as company cars.
Most employers are now required to pay contributions into employees’ pension schemes, and these employer contributions continue to be exempt from NI contributions. However, employee contributions will typically be made from net pay after deduction of tax and NI (which will include the levy from April 2022).
ULEV – Company Cars
As the benefit in kind value remains historically low until at least 2024/25, the provision of a ULEV, will remain NI efficient, especially compared with traditional diesel or petrol vehicles, which do not have the same government incentives.
Many employers have set up salary sacrifice schemes in respect of employee pension contributions to achieve NI savings for both themselves and their employees and some have schemes in place for ULEVs.
There is the potential to help mitigate the extra costs of the changes by implementing or maximising the benefits of salary sacrifice schemes.
While the opportunities to mitigate the extra NI costs remain attractive, employers still need to ensure that they are aware of some of the pitfalls inherent in both schemes, such as Minimum Wage legislation, early termination charges, and employment law considerations.
How can UNW help?
The specialists at UNW have unrivalled experience in helping employers understand the impact of tax and NI changes on their workforce costs and can help with the following:
- Considering the potential extra annual costs which accrue on the employer and employee following the increases;
- Evaluating any ideas to help mitigate the extra costs and assessing the potential savings and costs;
- Assistance and project managing the implementation of any salary sacrifice ideas;
- Communicating any changes to employees; and
- Ensuring that employers remain compliant with tax and NI legislation.
If you would like more information about this, or any other employment tax related matters please contact:
Employment Taxes Partner
T: 07810 852 362
Employment Taxes Senior Manager
T: 07392 870 199